Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/221735
Authors: 
Gießler, Stefan
Year of Publication: 
2020
Series/Report no.: 
IWH Discussion Papers 9/2020
Abstract: 
This paper investigates the forward-lookingness of monetary policy related to stabilising inflation over time under different degrees of central bank credibility in the four largest Latin American economies, which experienced a different transition path to the full-fledged inflation targeting regime. The analysis is based on an interest rate-based hybrid monetary policy rule with time-varying coefficients, which captures possible shifts from a backward-looking to a forward-looking monetary policy rule related to inflation stabilisation. The main results show that monetary policy is fully forward-looking and exclusively reacts to expected inflation under nearly perfect central bank credibility. Under a partially credible central bank, monetary policy is both backward-looking and forward-looking in terms of stabilising inflation. Moreover, monetary authorities put increasingly more priority on stabilising expected inflation relative to actual inflation if central bank credibility tends to improve over time.
Subjects: 
forward-lookingness
central bank credibility
inflation targeting
hybrid monetary policy rule
time-varying coefficients
JEL: 
C32
E42
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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